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INCOME TAXES
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company is responsible for filing consolidated U.S. federal, foreign and combined, unitary or separate state income tax returns. The Company is responsible for paying the taxes relating to such returns, including any subsequent adjustments resulting from the redetermination of such tax liabilities by the applicable taxing authorities.
The components of the income before income taxes for the Company’s domestic and foreign operations for the years ended December 31 are provided below:
For the year ended
December 31,
In millions202420232022
Domestic$782 $506 $372 
Foreign628 586 482 
Income before income taxes$1,410 $1,092 $854 
The consolidated provision for income taxes included in the Consolidated Statements of Income consisted of the following:
For the year ended
December 31,
In millions202420232022
Current tax expense   
Federal$106 $148 $37 
State26 29 3 
Foreign160 148 137 
 292 325 177 
Deferred tax expense (benefit)   
Federal26 (50)29 
State9 1 — 
Foreign16 (9)7 
 51 (58)36 
Total provision$343 $267 $213 
A reconciliation of the United States federal statutory income tax rate to the effective income tax rate on operations for the years ended December 31 is provided below:
For the year ended
December 31,
In millions202420232022
U.S. federal statutory rate21.0 %21.0 %21.0 %
State taxes1.8 1.5 2.0 
Foreign3.1 2.0 3.8 
Research and development credit(0.7)(0.6)(0.8)
Non-taxable gain on acquisition— (0.8)— 
U.S. net operating loss carryback(1.0)— — 
Changes in valuation allowances(0.4)1.0 (2.0)
U.S. tax reform provision 0.5 0.6 0.1 
Other, net— (0.2)0.9 
Effective rate24.3 %24.5 %25.0 %
The decrease in effective tax rate from 2023 to 2024 was primarily due to changes in valuation allowances and audit closures, partially offset by a change in the jurisdictional mix of earnings and the non-recurrence of the non-taxable gain generated on the acquisition of LKZ in 2023.
The decrease in effective tax rate from 2022 to 2023 was primarily due to a change in mix of foreign earnings, changes in valuation allowances, and the non-taxable gain generated on the acquisition of LKZ.
On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law. This act includes a new book minimum tax on certain large corporations and an excise tax on corporate stock buybacks among other provisions. At this time, the Company does not believe the act will have a material impact on our consolidated financial position, results of operations, or cash flows.
Components of deferred tax assets and liabilities were as follows:
 December 31,
In millions20242023
Deferred income tax assets:  
Accrued expenses and reserves$38 $50 
Warranty reserve53 49 
Deferred compensation/employee benefits92 77 
Right-of-use assets74 78 
Pension and postretirement obligations13 16 
Inventory39 49 
Deferred revenue93 84 
Net operating loss carry forwards106 124 
Other50 51 
Gross deferred income tax assets558 578 
Less: Valuation allowance(52)(58)
Total deferred income tax assets506 520 
Deferred income tax liabilities:  
Property, plant & equipment64 64 
Right-of-use liabilities71 75 
Intangible assets663 610 
Total deferred income tax liabilities798 749 
Net deferred income tax liability$292 $229 

A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2024, the valuation allowance for certain deferred tax asset carryforwards was $52 million, primarily in the United States, South Africa, China and the Netherlands. The decrease in valuation allowances in 2024 is primarily related to the sale of a business.
The Company has net operating loss carry-forwards in the amount of $373 million, of which $141 million are indefinite lived, $103 million expire within ten years and $129 million expire in various periods between December 31, 2035 to December 31, 2044.
As of December 31, 2024, the liability for income taxes associated with unrecognized tax benefits was $19 million, of which $18 million, if recognized, would favorably affect the Company’s effective income tax rate. As of December 31, 2023, the liability for income taxes associated with unrecognized tax benefits was $40 million, of which $27 million, if recognized, would favorably affect the Company’s effective income tax rate. A reconciliation of the beginning and ending amount of the gross liability for income taxes associated with unrecognized tax benefits follows:
In millions202420232022
Balance at beginning of year$40 $33 $32 
Unrecognized tax benefits in prior periods3 13 1 
Audit settlement during year(22)(5)— 
Expiration of audit statute of limitations(2)(1)— 
Balance at end of year
$19 $40 $33 
The Company includes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2024 and 2023, the total interest and penalties accrued was approximately $13 million.
An audit of the Company’s U.S. federal income tax return for the year 2017 is ongoing and select state and non-U.S. income tax audits are also underway. With limited exception, the Company is no longer subject to examination by various U.S. and foreign taxing authorities for years before 2019. At this time, the Company believes that it is reasonably possible that unrecognized tax benefits of approximately $14 million may change within the next 12 months due to the expiration of statutory review periods and current examinations.